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2023 (6) TMI 203 - AT - Income TaxDisallowance towards Debenture Redemption Premium paid to HDFC AMC and included in Work-in-Progress of Aurora Project - Whether the premium on redemption of debentures, which is akin to payment of interest is eligible for capitalization in work-in-progress? - HELD THAT - It is not disputed by the Revenue that the loan from Central Bank of India and other group concerns were taken specifically for Aurora Project . The fresh loan taken for repayment of the earlier loans which were undisputedly for the purpose of business, would for all intent and purpose be considered as loan for the purpose of business to the extent they are utilized for repayment of earlier loans or infused as fresh funds for the current business of the assessee. We deem it appropriate to restore this issue back to the file of AO for the limited purpose to examine the extent of OCDs utilized for payment of the earlier loans (including loan from the bank and other group concerns) taken for the Aurora Project . To the extent OCDs are used for repayment of old loans taken for the purpose of assessee s business, premium on redemption of debentures is to be allowed for capitalization in work-in-progress.
Issues:
Disallowance of debenture redemption premium paid to HDFC Asset Management Company Ltd. included in Work-in-Progress of "Aurora Project." Analysis: The appellant, engaged in real estate development, challenged the disallowance of Rs.130,00,00,000/- towards debenture redemption premium paid to HDFC AMC and included in Work-in-Progress of the "Aurora Project" for the Assessment Year 2016-17. The appellant issued Optionally Convertible Debentures (OCDs) to HDFC AMC in the financial year 2009-10 and paid redemption premium in subsequent years. The appellant followed the Project Completion Method and added the premium to Work-in-Progress. The appellant utilized funds raised through OCDs to repay loans for the project. The Assessing Officer disallowed capitalization of the premium, stating the funds were not used for the project. The appellant argued that OCD funds were used to repay loans for the project, justifying the premium capitalization. The appellant admitted some OCDs were used for other purposes, suggesting disallowance proportionate to non-project use. The Department contended that no significant work occurred on the "Aurora Project" since 2005-06, questioning the OCD issuance. After considering both sides, the Tribunal examined whether the premium on debenture redemption, akin to interest payment, could be capitalized in Work-in-Progress. The Tribunal noted the appellant's loans for the project and OCD issuance to HDFC AMC for loan repayment. The Tribunal directed the Assessing Officer to assess the extent of OCDs used for loan repayment related to the project. Premium on debenture redemption was allowed for capitalization in Work-in-Progress to the extent OCDs were utilized for project-related loan repayment. The appeal was partly allowed based on this direction. In conclusion, the Tribunal partially allowed the appeal, instructing a reevaluation by the Assessing Officer to determine the portion of OCDs utilized for project-related loan repayment, allowing the premium on debenture redemption to be capitalized in Work-in-Progress accordingly.
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